Two provisions of the Tax Cuts and Jobs Act (TCJA) are throwing some business owners for a loop as they prepare to file their federal income tax returns for 2018. The new law introduced a limit on the deductions that non-corporate taxpayers could claim for excess business losses while also limiting deductions for net operating loss (NOLs) carryforwards and repealing the use of NOL carrybacks. In addition, taxpayers should note that they must apply the at-risk limits and passive activity loss (PAL) rules under the old Tax Code before calculating the amount of any excess business loss.
An excess business loss is the amount by which the total deductions attributable to all of your trades or businesses exceed your total gross income and gains attributable to those trades or businesses plus $250,000 (or $500,000 in the case of a joint return).
Under the TCJA, taxpayers that are not structured as C Corporations may not deduct excess business losses in the current year. Instead, they can treat the disallowed deduction as a 2018 NOL carryforward that they may now use indefinitely to offset only 80 percent of a business’s future taxable income, according to the new NOL rules, which also prohibit taxpayers from carrying back NOLs that arise in tax years after Dec. 31, 2017. Exceptions apply for certain farming businesses and insurance companies, other than life insurance companies.
Despite Congress’s efforts to simplify the Tax Code, the new law can actually mean more work for taxpayers. For example, businesses will need to adjust carryovers from prior tax years to conform to the excess business loss limitations, and real estate professionals will need to apply the passive activity loss rules before calculating their business losses. In addition, taxpayers will need to carefully consider the scope of their income-generating activities and potentially implement new strategies to minimize the negative impact of these limitations and possible reduce their losses in 2018 and in future years.
The professional advisors and accountants with Berkowitz Pollack Brant have decades of experienced helping individuals and businesses across the globe implement tax-efficient strategies that comply with evolving tax policies.
About the Author: John G. Ebenger, CPA, is a director of Real Estate Tax Services with Berkowitz Pollack Brant, where he works closely with developers, landholders, investment funds and other real estate professionals, as well as high-net-worth entrepreneurs with complex holdings. He can be reached at the CPA firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.
On Jan. 15, 2019, the New York Department of Taxation and Finance finally issued its response to the Supreme Court’s June 2018 decision in South Dakota v. Wayfair, which expands states’ abilities to impose sale tax reporting and collection responsibilities on out-of-state vendors regardless of whether or not the sellers have a substantial physical presence in their jurisdiction.
The court’s decision in Wayfair represents a significant shift in state sales tax administration, moving from a purely physical presence test to one that considers the number of transactions and sales volume that a vendor makes in a particular state. While most states were quick to enact economic nexus legislation based on South Dakota’s 200 transactions or $100,000 in sales threshold as established in Wayfair, a handful, including New York, took their time.
According to New York’s recent guidance, businesses without a physical presence in the state are required to register as New York sales tax vendors and collect and remit sales tax when they met the following criteria during the immediately preceding four sale quarters:
- the vendor conducted more than 100 sales of tangible personal property for delivery, and
- the vendor made more than $300,000 of tangible personal property sales into the state.
New York’s imposition of economic nexus is effective immediately. Businesses that meet the law’s sales threshold tests should register with the state if they have not done so already.
It is important for businesses to recognize that New York’s sales tax economic nexus law differs in many ways from the standard established by Wayfair. For example, New York’s test considers both the number of sales into the state and the dollar value of those transactions. Therefore, an out-of-state vendor that makes a mere 15 sales totaling more than $1 million during the year to customers in the state may not be required to collect and remit state sales tax. Even though sales volume exceeds the $300,000 threshold, the vendor does not meet the number of transactions test.
In addition, although the language of New York’s tax law refers specifically to sales of tangible personal property, businesses that sell services to customers in the state may not be entirely free from state sales tax administration responsibilities. For example, because New York considers software to be taxable tangible property, sales of services that are tied to the use of that software may also be subject to sales tax but the vendor may not be required to register with the states.
Finally, sellers should recognize that New York’s economic nexus test is not based on a calendar year. Rather, sellers must measure their sales during the state’s sales specific tax quarters, which are March 1 through May 31, June 1 through August 31, September 1 through November 30, and December 1 through February 29.
The advisors and accountants with Berkowitz Pollack Brant’s State and Local Tax (SALT) practice help with individuals and businesses across the globe maintain tax efficiency while complying with often conflicting federal, state and local tax laws.
About the Author: Michael Hirsch, JD, LLM, is a senior manager of Tax Services with Berkowitz Pollack Brant’s state and local tax (SALT) practice, where he helps individual and business to meet their corporate, state and local tax reporting requirements. He can be reached at the CPA firm’s Fort Lauderdale, Fla., office at (954) 712-7000, or via email at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
The rehabilitation tax credit that provides an incentive for real estate owners to renovate and restore old or historic buildings has been modified under the Tax Cuts and Jobs Act (TCJA) signed into law in December 2017.
Under the new law, taxpayers claiming a 20 percent credit for the qualifying costs they incur to substantially rehabilitate a building must spread out that credit over a five-year period beginning in the year they placed the building into service, which is the date on which construction is completed and all or a portion of the building can be occupied. Excluded from the credit are any expenses that taxpayers incurred to buy the structure.
In addition, the law specifically eliminates the availability of a reduced 10 percent rehabilitation credit for pre-1936 buildings. However, owners of certified historic structures or pre-1936 buildings may qualify for temporary relief under a transition rule when they meet the following conditions:
- The taxpayer owned or leased the building on Jan. 1, 2018, and he or she continues to own or lease the building after that date.
- The 24- or 60-month period selected by the taxpayer for the substantial rehabilitation test begins by June 20, 2018.
Qualifying for and claiming the rehabilitation tax credit can be a complicated process for which taxpayers should seek the counsel of professional tax advisors and accountants.
About the Author: Joshua P. Heberling is a senior manager with Berkowitz Pollack Brant’s Tax Services practice, where he focuses on tax planning and compliance services for high-net-worth individuals and businesses in the commercial real estate, land development and office market industries. He can be reached at the firm’s Boca Raton, Fla., office at (561) 361-2000 or via email at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
The open-enrollment period for U.S. taxpayers to secure medical health insurance for 2019 via the Health Insurance Marketplace runs from Nov. 1, 2018, through Dec. 15, 2019. While the new tax law introduced on Jan. 1, 2018, does eliminate the Obamacare individual shared responsibility penalty for individuals who go without insurance in 2019, there are other reasons taxpayers should consider enrolling in a marketplace plan for 2019.
Some states, such as the District of Columbia, Massachusetts and New Jersey, have implemented their own individual mandates that will assess penalties on residents who do not have minimum essential health care coverage in 2019 and who do not qualify for an exemption.
In addition, by enrolling in a marketplace health care plan, you will continue to receive many of the benefits and incentives that the Affordable Care Act (ACA) introduced, such as guaranteed coverage for pre-existing conditions and free annual physical exams and preventive care immunizations, screenings and counseling. Without a marketplace plan, you may be denied coverage from a private insurer, or you may be unable to afford care and treatment for an unexpected illness or injury to you or your family members.
Due in part to the elimination of the individual mandate, most families should expect to pay higher premiums for plans in 2019 than they did in prior years. However, the premium tax credit has also increased for 2019, helping qualifying taxpayers to subsidize their costs for coverage. High-income families that do not qualify for the premium subsidy may want to consider setting aside pre-tax dollars into health savings accounts (HSAs) to help them pay healthcare costs, including marketplace plan premiums.
About the Author: Adam Cohen, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant, where he works with closely held businesses and non-profit charities, hospitals and family foundations to maintain tax efficiency and comply with federal and state regulations. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via e-mail at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
The Internal Revenue Code allows a deduction for 50 percent of the cost of a meal at which business is discussed. The language contained in the 2017 Tax and Cuts and Jobs Act reforming the U.S. tax code appeared to imply that businesses could no longer deduct expenses for client meals enjoyed at entertainment events, such as sporting events, concerts, theatrical performances, golf and fishing outings, and cruises. According to the IRS, however, businesses can continue to take advantage of this valuable tax break in 2018, even when they cannot write off the costs of the entertainment activities.
In its most recently issued guidance, the IRS said that companies can continue to deduct 50 percent of the costs they incur for meals with clients at entertainment events, as long as those meals are not lavish, and they are considered ordinary and necessary for the active conduct of the taxpayer’s trade or business. The only other criteria businesses must meet to qualify for the 50 percent meal deduction is to have a receipt demonstrating that they paid for the meal separately from all other entertainment-related expenses, which, in and of themselves, are no longer deductible under the new law.
For example, if a businesswoman treats a client to tickets to a baseball game where she also buys the client a hot dog and drinks, she may not deduct the entertainment expenses of the tickets. However, she can deduct 50 percent of the costs for the food and drinks purchased separately. Yet, if a businessman invites a prospective client to join him at a suite at a basketball game where food and drinks are provided, both the tickets and the food are considered entertainment expenses that are not deductible under the law. The only way the taxpayer can deduct half of the food and beverage expenses is if he has an invoice separating out those costs from the non-deductible entertainment costs of tickets.
About the Author: Jeffrey M. Mutnik, CPA/PFS, is a director of Taxation and Financial Services with Berkowitz Pollack Brant Advisors and Accountants, where he provides tax- and estate-planning counsel to high-net-worth families, closely held businesses and professional services firms. He can be reached at the CPA firm’s Ft. Lauderdale, Fla., office at (954) 712-7000 or via email at info@bpbcpa.com.
Information contained in this article is subject to change based on further interpretation of tax laws and subsequent guidance issued by the Internal Revenue Service.
